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Random Thoughts: Looking Back As We Look Forward


Could we really have seen this coming?


The following posts were among those posted late Friday afternoon on our Buzz & Banter and are shared for the benefit of ye faithful:

Todd Harrison
September 12, 2008
3:49 pm

Locusts, Vermin, Darkness… Darkness?

I'm not sure if there's any metaphorical significance to this but it just got dark-and I mean black-in midtown Manhattan. It's most likely a storm system but as Steely Dan sings in the background, I couldn't help but draw the parallel.

Minyan Brooks pinged from South Carolina and said "I'm hearing nightmare stories from friends inside big banks up there--I couldn't imagine how dark it must be up there."

He's right-it is dark-with regards to both the weather and social mood.

As we always say, social mood and risk appetites shape the tape. While some sorta intervention or resolution is indeed possible, hope has never been a viable investment strategy.

I know it's been a long week, Minyans, but clear the mechanism and make smart choices into the bell. The risk profile you go home with is the one you'll awake with on Monday.

May peace be with you.

Kevin Depew
Friday, September 12
3:41 pm

The Pep Step

A few quick points into the close:

1) Crashes occur from oversold (not overbought) conditions.

2) Because the credit situation is so dire and not easily followable for equity traders and investors, they may be operating under illusion that things arent as bad as they are based on indices.

3) Be careful following tried and true stock market indicators when the real issue is credit. Stock market indicators--by definition--fail during crashes.

Todd Harrison
September 12, 2008
3:33 pm

Flip a Coin!


I don't see a lot of discussion on the much improved charts of the AA and AAA ABX of late.

Minyanville highlighted their collapse as an early warning of the CDO meltdown (correctly). Is there any reason to expect the other side of that trade in light of the higher lows and higher highs since mid July? I also see Maiden Lane values creeping higher.

Any thoughts?

Minyan Scott


Great point--you always wanna see both sides of every trade. I've been of the view that one of two things must occur: either credit gets better or equities get worse. September is a huge month for issuance and the digestion of that should shape the tape into year-end. Or at least that's how I'm looking at it.

With that said-and understanding that equities are a thermometer while credit is the backbone-it's worth noting that the S&P is higher on the week despite the Art Carnage we've seen in a slew of massive financials.

I mean-seriously, Lehman (LEH), AIG (AIG), Merrill (MER)-we're talking about massive institutional underpinnings getting absolutely slammed.

Shake out or fake out? I'm not smart enough to know but I'm disciplined enough to discount the risks and not lament opportunity lost. I'll also offer that the proxies you mentioned aren't absolute and many indications point to credit deterioration.

The wildcard is the introduction of an "RTC-style" government solution, which is seemingly inevitable, but may not be enough.

Why? Trillions of dollars in derivatives and the potential for a "snow ball effect."

In short, there is incredible risk both ways and it's very difficult to discount the unknowns in this environment.

As such, I'm in capital preservation mode as I "hit it to quit it" intraday and keep my overnight powder dry.

Hope this helps in a hard tape. Have a fantastic weekend.

Todd Harrison
September 12, 2008
3:04 pm

The Mess Around!

No, not this--I'm talking about the slew of dew we're working through. So, without further adieu (sorry)...

Are We Seeing Survival of the Fittest in the Financials?

From obstacles are bred opportunities and few firms are in a position to add capacity into this downturn.

We'll see some deals as a function of need rather than want.

  • The question is whether there will be enough able buyers to absorb the problem children and ride out the credit crisis.
  • Remember, they'll assume the liabilities as well as the inevitable lawsuits so consolidation is a step but not necessarily the solution.

Should the Government Help General Motors (GM)?

Odds and Ends...

  • We've been talking about AIG (AIG) for some time and it is standing out as perhaps the biggest structural problem in the marketplace.
  • USO $80-I came in long the USO, sold it on the opening but nibbled anew with a tight stop below this level.
  • Perspective. We often say that bad teams define good fans just as bad times define good friends. It's brutal out there--and I mean brutal with a capital brute--so the proper perspective is paramount as hurricanes--both actual and metaphorical--hit home. Breathe, Minyans, it could be worse and, for a lot of people, it already is.

Todd Harrison
September 12, 2008
1:48 pm

Are We There Yet?

  • 17 years and I'm still not comfy leaving my turret during the trading day. And that's without meaningful exposure.

  • Grant's Interest Rate Observer has a negative note out on General Electric (GE) and highlights two primary concerns. The first is GE Capital reserves against future credit deterioration. The second is the impact of the global slowdown on its cyclical business lines. $26.25 is the lowest close since 2003 and a level to watch.

  • What comes first-a Lehman (LEH) deal or the widespread implementation of the uptick rule?

  • And then what will we do when the next problem child starts acting up and trading down?

  • While I sold my USO calls into the opening strength, I'm taking a long, hard look at revisiting them with a stop below $80.

  • Remember when General Motors (GM) broke $10 and everyone was talking bankruptcy? The stock is quietly up 50% from the July lows. The point isn't whether or not it should be, nor is it a comment that 50% ain't what it used to be. It's simply this: As traders, the destination we arrive at pales in comparison to the path that we take to get there.

  • You can learn a lot just by watching Apple (AAPL). $150 remains an important level on a closing basis.

  • You really gotta want it, eh? No doubt. Tenacity, resolve and perseverance aren't only the hallmarks of success--they're seemingly the recipe for survival. Keep perspective Minyans--the greatest opportunities are bred from seemingly insurmountable obstacles.


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